On May 19th, the Texas Supreme Court ruled unanimously in favor of Pepper-Lawson Horizon International Group and against Texas Southern University. The American Subcontractors Association supported a friend-of-the-court brief on behalf of Pepper-Lawson last year, seeking an appeal on a decision that held that an entity could not be sued for prompt payment violations because it had not waived sovereign immunity. Specifically, state government entities will no longer be able to unreasonably stonewall contractor claimants.

This ruling has a profound impact on all contractors doing business with the State of Texas. Specifically, state government entities will no longer be able to unreasonably stonewall contractor claimants. The often-used defense practice of challenging the Court’s jurisdiction to stall the case has now been properly clarified and limited. As of today, if contractors can properly state a claim under the applicable waiver of sovereign immunity statute, then the case can proceed. Further, contractors are no longer required to disprove all of the State’s defenses in order to proceed with their case. This case sets an important precedent for courts across the country as it applies to prompt payment for our subcontractors.

At issue is the construction of a new student house at Texas Southern University. In February 2014, the University and Pepper-Lawson Horizon (“Contractor”) International Group entered into a contract for the work. Shortly after beginning work, the Contractor discovered that a previous building at the worksite had not been fully demolished and those remnants obstructed progress on the Project. Though the University agreed to a cost increase to pay the Contractor to remove the obstructions, it denied the Contractor’s request for additional time. The Contractor’s progress was further slowed as it encountered other problems and delays, including weather delays, power delays and problems arising out of defective plans, but the University denied all requests for additional time. At completion, the Contractor invoiced the University for claimed balance due, but the University refused to pay. The Contractor sued, asserting that the University had breached the parties’ contract by failing to pay and by denying its requests for equitable time extensions.

The University denied the Contractor’s allegations, arguing that “sovereign immunity has not been waived for [the Contractor’s] claims.” It also stated that the Contractor had failed to point to a specific contractual provision that it had breached and that the Prompt Pay Act does not expressly waive sovereign immunity.

The trial court denied the University’s jurisdictional defenses and set the matter for trial. On appeal, however, the Court of Appeals of Texas, First District, Houston, reversed. The appeals court rendered judgment dismissing the case for lack of subject matter jurisdiction. Once the matter reached the Texas Supreme Court on appeal, the Court unanimously rejected the state’s claims in the case, upholding the prompt payment act for contractors in the state.

Brian Carroll, Sanderford & Carroll, P.C., Belton, TX prepared the brief for ASA. ASA’s Subcontractors Legal Defense Fund financed the brief. Contributions to the SLDF may be made online.

The American Subcontractors Association is actively involved in the promotion of legislative action across the nation and has regularly intervened in legal actions that affect the construction industry at large. The fund supports ASA’s critical legal activities in precedent-setting cases to protect the interests of all subcontractors. ASA taps the SLDF to fund amicus curiae, or “friend-of-the-court,” briefs in appellate-level cases that would have a significant impact on
subcontractor rights.

And up in Oregon…

ASA SLDF Joins ABC in Oregon Insurance Case

The Twigg v. Admiral Insurance Company case is pending before the Oregon Supreme Court.

The dispute at issue concerns whether an insurance company, Admiral Insurance, had a duty to indemnify the insured contractor and pay a portion of an arbitration award that homeowners, the Twiggs, obtained against the contractor for breach of contract. After the owners obtained the arbitration award, they sued the insurer for breaching its insurance policy with the contractor when it failed to pay a portion of the contractor’s liability to the Twiggs under the arbitration award.

Both the trial court and Court of Appeals concluded that the contractor’s insurance policy did not provide coverage for its liability to the Twiggs. The courts noted that the insurance policy in question applied to property damage caused by an “occurrence,” defined as an “accident” but that the contractor’s liability to the owners arose instead from a breach of a separate settlement agreement, while the owners argued that the defective construction work qualified as an occurrence under the relevant policy. The issue on appeal to the Supreme Court is whether the applicable insurance policy provides coverage for the legal liability the Contractor incurred in the second arbitration proceeding.

From a subcontractor perspective, proper application of a broad interpretation of “occurrence” is of specific interest and, as with many of these insurance coverage disputes, virtually all tiers involved in the construction projects. The importance of maintaining a broad interpretation of the scope of insurance coverage and protecting the interests of subcontractors in the interpretation of the scope of covered claims was the deciding factor for participation. In this case, SLDF joined the ABC-Oregon Columbia Chapter in its amicus brief on behalf of the contractor.

To support these Subcontractor Legal Defense Fund efforts on behalf of our subcontractor community across the country, go to www.sldf.net.